Record fuel prices are pushing freight off US highways and onto trains, helping railroad companies post higher revenue and profits as shippers look for cheaper ways to move goods long distances, Reuters reported on Thursday, October 22.

Source: Reuters via WIXX

Union Pacific, Norfolk Southern and CSX all reported a jump in third-quarter profit and revenue this week, with company executives saying high fuel costs and fewer available trucks were sending more business their way, Reuters said. "Railroads are much more efficient. It costs us way less per ton to move products across the US. So when fuel prices go up, it's naturally an advantage," Union Pacific CEO Jim Vena told investors on a post-earnings call on Thursday, according to Reuters.

Source: Reuters via WIXX

The shift is showing up most clearly in intermodal shipments, where freight moves by rail for the long haul and trucks handle pickup and final delivery, Reuters reported. Union Pacific's domestic intermodal volume rose 13 percent from a year earlier in the third quarter, while CSX reported a 7 percent rise and Norfolk Southern 3 percent. "We are seeing long-haul truckload shift to intermodal and increased use of transload and rail-served distribution centers," said James Mourafetis, head of transportation, logistics and services at consulting firm EFESO, according to Reuters.

Source: Reuters via Northland News Radio

Shrinking trucking capacity is also moving freight onto rail, Reuters said: a prolonged freight downturn has forced smaller carriers out of the market, with high operating costs and stricter driver enforcement limiting the return of trucking capacity. American Trucking Associations chief economist Bob Costello said the truck market had flipped this year due to reduced capacity, not robust demand, Reuters reported. Separately, The Supply Chainer reported US on-highway diesel averaged about $6.28 a gallon in mid-October, according to the Energy Information Administration, while California diesel remained above $8.24 a gallon.

Source: The Supply Chainer — California diesel above $8

Higher fuel prices are also raising railroads' own costs, Reuters noted: Union Pacific said high fuel prices hurt its third-quarter operating ratio by 140 basis points, while Norfolk Southern said fuel costs accounted for about half of the year-over-year increase in both revenue and expenses. Diesel, a key cost for freight carriers, reached a record $6.53 per gallon in September, according to AAA data cited by Reuters.

Source: Reuters via WIXX